Internal Revenue Code · 26 U.S.C.

§ 1385. Amounts includible in patron’s gross income

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 1385

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status: In force
Added: October 16, 1962 by Pub. L. 87–834
Last amended: October 4, 1976 by Pub. L. 94–455
Amendments: 2 dated changes in the source credit
Length: 3 subsections · 515 words · about 2 min to read
Cross-references: cites 2; cited by 2 Code sections and 5 other regulations
Regulations: 1 issued under this section

¶(a) General rule Except as otherwise provided in subsection (b), each person shall include in gross income—

¶(1) the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a),

¶(2) any amount, described in section 1382 (c)(2)(A) (relating to certain nonpatronage distributions by tax-exempt farmers’ cooperatives), which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a)(1), and

¶(3) the amount of any per-unit retain allocation which is paid in qualified per-unit retain certificates and which is received by him during the taxable year from an organization described in section 1381(a).

¶(b) Exclusion from gross income Under regulations prescribed by the Secretary, the amount of any patronage dividend, and any amount received on the redemption, sale, or other disposition of a nonqualified written notice of allocation which was paid as a patronage dividend, shall not be included in gross income to the extent that such amount—

¶(1) is properly taken into account as an adjustment to basis of property, or

¶(2) is attributable to personal, living, or family items.

¶(c) Treatment of certain nonqualified written notices of allocation and certain nonqualified per-unit retain certificates

¶(1) Application of subsection This subsection shall apply to—

¶(A) any nonqualified written notice of allocation which—

¶(i) was paid as a patronage dividend, or

¶(ii) was paid by an organization described in section 1381(a)(1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c)(2)(A), and

¶(B) any nonqualified per-unit retain certificate which was paid as a per-unit retain allocation.

¶(2) Basis; amount of gain In the case of any nonqualified written notice of allocation or nonqualified per-unit retain certificate to which this subsection applies, for purposes of this chapter—

¶(A) the basis of such written notice of allocation or per-unit retain certificate in the hands of the patron to whom such written notice of allocation or per-unit retain certificate was paid shall be zero,

¶(B) the basis of such written notice of allocation or per-unit retain certificate which was acquired from a decedent shall be its basis in the hands of the decedent, and

¶(C) gain on the redemption, sale, or other disposition of such written notice of allocation or per-unit retain certificate by any person shall, to the extent that the stated dollar amount of such written notice of allocation or per-unit retain certificate exceeds its basis, be considered as ordinary income.

(Added Pub. L. 87–834, § 17(a), Oct. 16, 1962, 76 Stat. 1048; amended Pub. L. 89–809, title II, § 211(b)(1)–(4), Nov. 13, 1966, 80 Stat. 1582; Pub. L. 94–455, title XIX, §§ 1901(b)(3)(I), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834.)

Regulations under this section

Treasury regulations (26 CFR) issued under § 1385

§ 1.1385-1 Amounts includible in patron's gross income.

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 2 other sections

Cited by 2 Code sections

Cited in 5 regulations not issued under it

Amendment history

From the source credit and the official notes, newest first.

October 4, 1976Amended by Pub. L. 94–455Parts changed in 1976: (b) (c)(2)(C)
November 13, 1966Amended by Pub. L. 89–809Parts changed in 1966: (a)(3) (c)
October 16, 1962Added by Pub. L. 87–834

Where it sits in the Code

Official notes

Show the Law Revision Counsel's notes (amendments, effective dates)

Editorial Notes

Amendments

1976—Subsec. (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

Subsec. (c)(2)(C). Pub. L. 94–455, § 1901(b)(3)(I), substituted “ordinary income” for “gain from the sale or exchange of property which is not a capital asset”.

1966—Subsec. (a)(3). Pub. L. 89–809, § 211(b)(1), added par. (3).

Subsec. (c). Pub. L. 89–809, § 211(b)(2)–(4), inserted “and certain nonqualified per-unit retain certificates” in heading, inserted provisions to par. (1) for the application of the subsection to any nonqualified per-unit retain certificates which were paid as per-unit retain allocations, and inserted references to per-unit retain certificates in par. (2).

Effective Date of 1976 Amendment

Amendment by section 1901(b)(3)(I) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date of 1966 Amendment

Amendment by Pub. L. 89–809 applicable to per-unit retain allocations made during taxable years of an organization described in section 1381(a) of this title (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after Apr. 30, 1966, with respect to products delivered during such years, see section 211(e)(1) of Pub. L. 89–809, set out as a note under section 1382 of this title.

Effective Date

Section applicable, except as otherwise provided, to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87–834, set out as a note under section 1381 of this title.